Join the Nation's Conversation

Malaysia Airlines faces fight over its own survival

A couple watches the a Malaysia Airlines plane taxi on the runway at the Kuala Lumpur International Airport in Sepang on July 27, 2014. Any airline would struggle with the devastating impact of losing one jet full of passengers, especially if it had already been bleeding money for years. But losing another just months later is pushing crisis-hit Malaysia Airlines to the brink of financial collapse, airline experts said, spotlighting whether it can steer its way out of extended turmoil as once-troubled carriers such as Korean Air and Garuda Indonesia did before. AFP PHOTO/ MANAN VATSYAYANAMANAN VATSYAYANA/AFP/Getty Images ORIG FILE ID: 531987410(Photo: MANAN VATSYAYANA AFP/Getty Images)

BEIJING — This "Visit Malaysia Year 2014" was designed to lure even more foreign fliers to the beaches and other attractions of a Southeast Asian nation whose tourism bureau had profitably promoted with the "Malaysia, Truly Asia" slogan.

Then lightning struck twice, as Malaysia Airlines lost two passenger jetliners in under five months, with the likely loss of 537 lives. Tourism should recover as travelers enjoy other choices of airline, but the ill-fated national carrier appears less likely to survive, at least in its current form.

A government-led review of the airline's operations began after Flight 370 disappeared March 8 en route to Beijing. No trace of the plane has yet been found. That ongoing review, focused on the need to restructure, has been lent extra urgency by the second tragedy, the shooting down July 17 over eastern Ukraine of Flight 17 to Kuala Lumpur, although results are only expected in six months to a year's time.

The airline's commercial director said it will "emerge stronger" from the planned overhaul led by its majority shareholder, the government's sovereign wealth fund Khazanah Nasional Berhad. "There are several options on the table, but all involve creating an airline fit for purpose in what is a new era for us, and other airlines," Hugh Dunleavy wrote in a United Kingdom newspaper.

Aviation analysts in the region say the airline must make tough decisions to save and rebuild what was already a heavily loss-making business even before the two incidents caused many international customers to return tickets and demand refunds. Hard choices include whether to rebrand the airline with a new name, reduce staff and cut all international routes, they say.

In the absence of hard news from those conducting the review, speculation centers on whether Malaysia Airlines will go bankrupt, go private or sell off profitable parts such as its engineering unit. This month, Khazanah has dismissed news media reports that the airline will be privatized or merge with low-cost carrier AirAsia.

Given the now widespread aversion to boarding any flight whose airline code starts with MH, Malaysia Airlines must consider "cosmetic changes" including a different name and livery, and a switch from MH, said Timothy Ross, an Asian aviation analyst in Singapore for Credit Suisse, a Swiss bank. "More fundamentally, there are issues of cost and capital concentration. It's overstaffed, and its unions have understandably resisted moves to reduce their power and size," he said.

Run by an arm of the Malaysian government, the firm has experienced a "revolving door at the managing director level," with no real resolve to tackle unions or non-union labor costs, Ross said. Competition grows both from low-budget carriers such as AirAsia, and full service players, he said.

"It needs to figure out what it wants to be, rather than being all things to all people," said Ross, but Japan Airlines, bust just four years ago and now very well-run, offers hope "as long as management has a free hand," he said. "It's a test of how Malaysian politicians deal with it, or the airline will limp on as it has for the past decade, relying on government infusions," Ross said.

Chinese tourists, whose fast-swelling numbers excite the travel industry worldwide, have shunned Malaysia's national carrier ever since Flight 370 vanished. "Many Chinese people don't trust them now," said Zhang Qihuai, an aviation law expert in Beijing. "They must investigate the reason for their bad public relations management, and give relatives good compensation, those are the most important issues for their image in China," he said.

Yet Zhang said he expects the firm will survive its "double crisis."

Safety doubts will shrink its market share, costing the airline some good international routes, but the Malaysian government can fund its survival, just as Beijing spent billions to keep Chinese airlines flying during the economic crisis of 2008, he said.

Malaysia Airlines can keep its name, for the pride of millions of loyal passengers at home, but should trim its ambitions and become a domestic-only airline, advised Mohshin Aziz, aviation analyst at the Kuala Lumpur-based Maybank Investment Bank. "They must ask 'where is our business relevant?'" he said. "They only really make money on domestic sectors. The moment they go international, they lose money. Now the laws of probability are that they won't make money on international routes for a long time, if ever."

The firm loses $1.6 million every day, and will run out of capital by the middle of next year, Aziz said. Discounting tickets remains a "losing proposition," and international travelers can choose other airlines, but domestically, Malaysians will support the airline, he said.

"We love it, love the service, the food, what it represents," Aziz said. "If you change the brand name, logo and everything, it's an effort to disassociate yourself from the history."

Public opinion in Malaysia demands the airline be kept alive, and support grows for a domestic-only future, he said.

In the past, authorities "would say 'no way, international is what a carrier is all about', but extraordinary circumstances require an extraordinary solution," Aziz said.